Equity Valuation - Anheuser Busch
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[2008]
ROHAN PATIL
Equity Valuation and Analysis Anheuser-Busch
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
2
Table of Contents I. Assessment of Financial Distress ...................................................................... 3
A. Altman Z- score ........................................................................................................ 3
B. Significance of the Altman Z- score ........................................................................... 3
II. Analysis of Historical Operating Performance ................................................. 3
A. Year to Year Trend Analysis ...................................................................................... 3
B. Ratio Analysis ........................................................................................................... 4
C. Financial Performance Discussion ............................................................................. 4
III. Financial Position (GAAP basis) and ROE (DuPont Analysis) ........................ 5
A. Return on Equity ...................................................................................................... 5
B. Liquidity Position ...................................................................................................... 5
C. Capital Structure Analysis ........................................................................................ 6
D. Ratio Analysis – Property Plant and Equipment......................................................... 7
IV. 3 Year Financial Forecast – Management Case ............................................... 8
A. Income Statement Forecast - 2007,2008,2009 .......................................................... 8
B. Statement of Free Cash Flows - 2007,2008,2009 ...................................................... 8
C. Fixed Charge Coverage Forecast - 2007,2008,2009 ................................................... 8
D. Analysis of Overall Trends and Analyst Comments .................................................... 9
V. 3 Year Financial Forecast – Independent Analyst Case ................................... 9
A. Independent Outside Review - Current State of the Beer Industry ............................ 9
B. Forecast of Selected Income Statement Variables - 2007,2008,2009 ........................ 9
C. Income Statement Forecast - 2007,2008,2009 ........................................................ 11
D. Statement of Free Cash Flows - 2007,2008,2009 .................................................... 11
E. Rationale for Selection of Variables and Financial Performance Trends................... 12
VI. Adjusted Financial Analysis (Non GAAP) ...................................................... 13
A. Adjusted Income Statement – 2005,2006 ............................................................... 13
B. Rationalization for Analyst Assumptions ................................................................ 14
C. Comparison of GAAP Analysis to Non GAAP Analysis ............................................. 14
VII. Appendix – Calculation Details ....................................................................... 16
VIII. References ........................................................................................................ 23
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
3
I. Assessment of Financial Distress
AA.. TThhee AAllttmmaann ZZ –– SSccoorree::
It is one of the best known bankruptcy prediction formulae. Using Multiple
Discriminant Analysis (MDA) with five different financial and economic ratios, it
helps indicate the probability of bankruptcy in the near future with considerable
accuracy.
Using the formula as shown in the appendix, we get a Z-score of 6.23 for 2006 and 5.61
for 2005.
BB.. SSiiggnniiffiiccaannccee ooff tthhee AAllttmmaann ZZ –– SSccoorreess::
Based on the empirical research we know that a z-score above 2.99 is a sign of a
financially healthy company. With a Z-score of 6.23 and 5.61, Anheuser Busch has
a very low probability of bankruptcy. * Please refer to Appendix for calculations
II. Analysis of Historical Operating Performance (GAAP Basis)
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Relative change and dollar change for Fiscal year 2006 and 2005
Trend Analysis
Income Stmt Items 2006 2005 Dollar Change Percentage Change
Net Sales $15,717.10 $15,035.70 $681.40 4.53%
Gross Profit $5,552.10 $5,429.40 $122.70 2.26%
Operating Income $2,719.60 $2,591.90 $127.70 4.93%
EBIT $2,708.80 $2,594.60 $114.20 4.40%
Interest Expense ($451.30) ($454.50) ($3.20) -0.70%
Net Income $1,965.20 $1,744.40 $220.80 12.66%
EBITDA $3,697.50 $3,573.60 $123.90 3.47%
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
4
BB..
Profitability Ratios Ratios 2006 2005
Gross Margin 35.33% 36.11%
Operating Margin 17.30% 17.24%
EBIT Margin 17.23% 17.26%
Interest Coverage 6.00 5.71
Net Margin 12.50% 11.60%
EBITDA Margin 23.53% 23.77%
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Starting out with the total domestic beer sales of the company, we saw declining
sales in the fiscal year of 2005. Although the situation improved a little in 2006
with a marginal growth of 2.8%, the domestic beer segment has not performed
well as compared to other segments.
However, their aggressive foreign expansion in recent times has resulted in steep
growth of about 7% in the international beer sales in 2006. This has primarily due
to sales in China, Canada and Mexico. Overall, we saw a growth of 4.53% led by
their international segment.
Looking at the profitability analysis, we note the fact that cost associated with
higher beer volume, increased packaging materials and plant operating costs for
domestic beer and higher energy costs have considerable reduced the gross
margin of the company.
As the company enters new markets like China the marketing costs went up as
expected. However, a steep decline in the domestic marketing costs has offset this
increase resulting in a overall reduction in the operating expenses. The growth in
the operating income is primarily due to reduction in operating expenses rather
than growth in net sales.
Thus, the financial performance of the company in US market has been flat but
comparatively the international line of businesses has seen staggering growth in
the fiscal year 2005-06.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
5
III. Financial Position (GAAP Basis) and ROE (DuPont) Analysis
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SolvencyActivityyofitabilitROE Pr
monEquityAverageCom
alAssetAverageTot
alAssetsAverageTot
NetSales
NetSales
NetIncomeROE
Return on Equity
Factor 2006 2005
Profitability 0.1250 0.1160
Activity 0.9545 0.9188
Solvency 4.3227 4.9159
ROE 51.59% 52.40%
The ROE has reduced by 1.57 % during 2006. Among the three factors that
influence the Return on Equity for Anheuser-Busch the financial leverage
ratio (solvency) is primarily responsible for driving the change in ROE
between fiscal 2006 and 2005. Change in the solvency has been over -12%
indicating more leverage. This has reduced the overall ROE by 1.57%.
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We shall begin with the calculations of the liquidity ratios for Anheuser
Busch.
Liquidity Ratios
Ratios 2006 2005
Current Ratio 0.81 0.89
Quick Ratio 0.51 0.56
Cash Ratio 0.18 0.21
Cash flow from operations Ratio 1.21 1.36 * Please refer to Appendix for calculations
As shown by the ratios here, the company has more short term liabilities
than short-term assets. However, the company’s operating cash-flows are
substantially higher than their current liabilities. Moving forward, with $ 2
billion revolving credit, $1.35 registered debt available for issuance we
envisage no short-term credit crunch for the company in the near future.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
6
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Total Debt-to-Total Capital Ratio
Components 2006 2005
Total Debt $7,653.50 $7,972.10
Total Capital $11,592.20 $11,651.90
Ratio → 0.6602 0.6842
Total Debt-to-EBITDA Ratio
Components 2006 2005
Total Debt $7,653.50 $7,972.10
EBITDA $3,697.50 $3,573.60
Ratio → 2.0699 2.2308
After conducting ratio analysis specifically on the debt ratios, it is clear that
Anheuser-Busch is highly leveraged. Company enjoys a strategic and
competitive advantage as it represents almost half the beer sales and almost
2/3 of the operating profits. We would like to say that the company has used
this advantage to its benefit. It is clear that the cost of debt is substantially
lower than the cost of equity. In recent times it has successfully conducted
several leveraged buyouts that have substantially increased its long-term
corporate debt. However, the company is still rated A+ by Fitch.
Anheuser Busch operates with a working capital deficit. The accounts payable
constitute a major portion of their current liabilities. The cash cycle of the
company is of -16 days which indicates that the company is very efficient in
terms of its operations and cash management.
An important drawback in its capital structure that has come to light after
implementation of FAS 158 is that A-B’s pension benefit plan is highly
underfunded. This liability of over a billion dollars could create problems in
the not-so-distant future. A detailed analysis of this section is recommended.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
7
C. The Enterprise value of Anheuser-Busch is $47,010.37 million.
The enterprise value takes into account the value of debt as well as equity and
hence is unaffected by the company’s capital structure. Cash is subtracted
because when it is paid out as dividend, it reduces the net cost to the
purchaser. Therefore the business was only the reduced amount to start with.
The same effect is accomplished when the cash is used to pay down debt.
The ratio of the Enterprise value to EBITDA 12.7141
This ratio is significant as it is not influenced by capital structure and taxes.
The inverse of this ratio tells us that the cash return on investment for
Anheuser-Busch 7.86%
*See Appendix for calculations
D.
AAvveerraaggee ttoottaall lliiffee ssppaann of Anheuser-Busch’s property, plant and
equipment at December 31st 2006 18.92 years
AAvveerraaggee aaggee of Anheuser-Busch’s property, plant and equipment at
December 31st 2006 9.91 years
Additionally, the relative age of A-B’s property, plant and equipment at
December 31st 2006 52.35%
OOuuttccoommee ooff tthhee rraattiiooss.
The average relative age of the plants and equipments is about half their
useful lives. Thus, in out opinion there are no major purchases of plants and
equipments in the near future
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
8
IV. 3-Year Financial forecast – Management Case (with predefined assumptions)
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CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 (in millions, except per share) 2007 2008 2009
Net sales 16,172.90 16,852.16 17,357.72
Cost of sales 10,433.91 10,845.17 11,142.75
Gross profit 5,738.99 6,006.99 6,214.97
Marketing, distribution and administrative expenses (2,978.19) (3,106.87) (3,174.87)
Restructuring Expense (8.50) (13.00) (17.00)
Operating income 2,752.30 2,887.11 3,023.10
Interest expense (461.23) (471.38) (481.75)
Other income/(expense), net (15.00) 24.00 14.00
Income before income taxes 2,276.07 2,439.74 2,555.35
Provision for income taxes (853.53) (914.90) (958.26)
Equity income, net of tax 597.63 606.60 615.70
Net income 2,020.18 2,131.43 2,212.79
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Statement of Free Cash Flows
Components 2007 2008 2009
EBITDA $3,759.22 $3,962.87 $4,118.82
- Maintenance CapEx ($295.75) ($323.75) ($367.50)
- Dividends ($80.81) ($85.26) ($88.51)
Free cash flow $3,382.66 $3,553.86 $3,662.81
C. FFiixxeedd cchhaarrggee ccoovveerraaggee rraattiioo ffoorr 22000077,, 22000088,, 22000099.
The Fixed charge coverage ratios for year:
2007 4.29
2008 4.35
2009 4.24
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
9
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ssttaatteemmeenntt ffoorreeccaasstt,, aanndd tthhee 33--yyeeaarr ffiixxeedd cchhaarrggee ccoovveerraaggee ffoorreeccaasstt:
Looking at the trends in the free cash flow statement presented above we
notice that the there is steady growth of free cash flow over the three
years. This trend is accompanied by steady growth in sales as well as net
income. With the absence of any major acquisitions we would like to
ascertain that company will most likely experience overall organic growth
in all of its major segments.
We see no substantial change in the fixed charge coverage ratio.
V. 3-Year Financial Forecast: Independent analyst assumptions
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..
The U.S. brewing industry is a dynamic part of our national economy,
contributing billions of dollars in wages and taxes. An indication of
beer’s importance is its inclusion in the basket of goods the government
uses to calculate the Consumer Price Index.
The industry today includes more than 2,000 brewers and importer
establishments and over 2,700 beer distributor facilities across the
country but is dominated by three producers who command a nearly 80
percent market share as of 1997 -- Anheuser-Busch (45%), Miller
Brewing (23%), and Adolph Coors (10. In recent years, the industry has
seen a flat trend of sales growth. However in 2006, the industry
recorded 2.2% growth, hitting an all-time record of over 210 million
barrels of beer.
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Projected Outlook:
Looking at the trend in the beer consumption in US for last 3-year, we
note that the consumption level has been almost flat.
Thus, assuming a recessionary environment in 2007 wherein the
consumption of the beer is expected to decrease, we expect that their
domestic sales would decrease from their current levels.
However, the company has well diversified investments in foreign
breweries and establishments. Given that the international sales accounted
for 32% of their net income as reported in 2006, the impact of recession
would be cushioned. In our opinion, the company might experience flat
sales growth or even slight decline in overall sales for 2007.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
10
Projected Variables:
Sales:
From our discussion above, we are of the opinion that the company will
experience a decline in the net sales of beer of about 1% in 2007.
However, in the following year, although the economy is expected to
recover in the second half, we expect the sales to increase by only 2%.
This growth is held back because of the advent of a new competitor and
post-recessionary economic conditions.
After a slack period of these two years, we expect the company to recover
quickly and overcome the competition given its dominating presence and
brand name.
Our projection is that in 2009 the company’s net sales will grow by about
5%.
Gross Margin:
After analyzing various factors affecting the production cost of the beer,
we have a reason to believe that the cost of packaging materials, energy
costs, aluminum costs and plant operating costs are on an upward trend.
Thus, in the future we expect a declining gross margin.
It would be reasonable to anticipate the decline in the gross margin to be
1% for 2007. Additionally, the higher incremental expenses and increase
in the beer ingredient costs would be reflected through the decline of 1.5
% in gross margin of 2008 and 2009.
Marketing, distribution and administrative expenses:
We expect the MD&A expense to follow the current trend (i.e. moving
average of last three years).
Interest Expense:
Given that the company works on a working capital deficit basis and its
not likely to change its policy within the next couple of years, the interest
expense would go up by about 3%.
Given that the company will have higher average usage of the revolving
credit facility during 2008 and 2009 to fund the increased beer ingredient
cost, the interest expense is expected to grow at a rate of 4%.
Income Statement Forecast for selected variables
Components 2007 2008 2009
Sales Growth -1.00% 2.00% 5.00%
Gross Margin -1.00% -1.50% -1.50%
MD& A expense* -18.41% -18.44% -18.29%
Interest expense* -2.99% -3.05% -3.02% * Expressed as percentage of Net Sales
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
11
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tthhee mmaannaaggeemmeenntt ccaassee aanndd tthhee iinnddeeppeennddeenntt aannaallyysstt ccaassee..
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 (in millions, except per share) 2007 2008 2009
Net sales 15,559.93 15,871.13 16,664.68
Cost of sales 10,218.95 10,661.40 11,444.44
Gross profit 5,340.98 5,209.73 5,220.25
Marketing, distribution and administrative expenses (2,865.31) (2,926.01) (3,048.11)
Restructuring Expense (8.50) (13.00) (17.00)
Operating income 2,752.30 2,887.11 3,023.10
Interest expense (464.84) (483.43) (502.77)
Other income/(expense), net (15.00) 24.00 14.00
Income before income taxes 1,987.33 1,811.29 1,666.37
Provision for income taxes (745.25) (679.23) (624.89)
Equity income, net of tax 597.63 606.60 615.70
Net income 1,839.71 1,738.65 1,657.18
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ooff tthhee mmaannaaggeemmeenntt ccaassee aanndd tthhee iinnddeeppeennddeenntt aannaallyysstt ccaassee..
Statement of Free Cash Flows
Components 2007 2008 2009
EBITDA $3,474.09 $3,346.47 $3,250.86
- Maintainence CapEx ($295.75) ($323.75) ($367.50)
- Dividends ($73.59) ($69.55) ($66.29)
Free cash flow $3,104.75 $2,953.18 $2,817.07
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
12
EE.. RRaattiioonnaallee ffoorr SSeelleeccttiioonn ooff VVaarriiaabblleess aanndd FFiinnaanncciiaall PPeerrffoorrmmaannccee TTrreennddss
The variables selected here capture the entire financial performance of the
company. With percentage change in net sales we are trying to gauge the
top-line growth of the company. But the overall profitability depends on
the company’s performance in cutting the cost of production as well. This
is indicated by the gross margin forecast.
In the beer industry it is clear that advertising costs constitute a major
portion of their operating costs. Also distribution expense is considerably
high. This part is indicated by the MD&A expense. The effects of the
organic growth and increases in the expenses on the capital structure of the
company are indicated by the change in the interest expense. Higher the
debt more is the interest expense.
Thus using these variables we are able to capture the performance of the
company on the front end of the business with sales and marketing costs
and cost of sales and also, we are able to predict the effects on the back-
end i.e. the way they can finance this growth as indicated by the interest
expense.
In our analysis, we expect that the sales of the company are likely to
decline due to a recessionary domestic market. However, effective cost
management may help the company in keeping its production costs under
control. Also, with more competition in the domestic markets and newly
entered international markets, the cost of marketing is likely to go up
initially. But later on, it is expected top be inline with the current trend.
As in the past, we expect the company to finance higher costs of
production with debt which would increase the interest expense
considerably.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
13
VI. Adjusted Financial Analysis (Non GAAP)
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nnoorrmmaalliizzaattiioonn ooff tthhee ccoommppaannyy’’ss eeaarrnniinnggss..
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 (in millions, except per share)
2006 Adjustments Adjusted 2005 Adjustments Adjusted
Gross sales 17,957.80 0.00 17,957.80 17,253.50 17,253.50
Excise taxes (2,240.70) 0.00 (2,240.70) (2,217.80) (2,217.80)
Net sales 15,717.10 727.00 16,444.10 15,035.70 710.20 15,745.90
Cost of sales (10,165.00) 44.00 (10,121.00) (9,606.30) 45.00 (9,561.30)
Gross profit 5,552.10 771.00 6,323.10 5,429.40 755.20 6,184.60
Depreciation Expense 0.00 (26.16) (26.16) 0.00 (20.41) (20.41)
Marketing, distribution (2,832.50) (401.20) (3,233.70) (2,837.50) (439.20) (3,276.70)
and administrative expenses
Operating income 2,719.60 343.64 3,063.24 2,486.90 295.59 2,887.49
Interest expense (451.30) (34.34) (485.64) (454.50) (32.96) (487.46)
Interest capitalized 17.60 (17.60) 0.00 19.90 (19.90) 0.00
Interest income 1.80 1.80 2.40 2.40
Net effective gains/(losses) 0.00 (51.70) (51.70) 0.00 6.50 6.50
from derivative instruments
Litigation settlement 0.00 (105.00) 105.00 0.00
Other income/(expense), net (10.80) (274.10) (284.90) 2.70 (277.50) (274.80) Income before income taxes 2,276.90 (34.10) 2,242.80 2,057.40 76.73 2,134.13
Provision for income taxes (900.50) 46.66 (853.84) (811.10) 39.57 (771.53)
Equity income, net of tax 588.80 588.80 498.10 498.10
Net income 1,965.20 12.56 1,977.76 1,744.40 116.31 1,860.71
Basic earnings per share 2.55 2.57 2.24 2.41
Diluted earnings per share 2.53 2.55 2.23 2.40
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
14
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Following are the adjustments made based on the information given in the
footnotes and the Management Discussion and Analysis (MD&A):
1. From the footnotes we find that the company has included the cost of delivery
of their products in the Marketing, distribution and administrative expense.
Since delivery of these products is not the main business of the company, we
are of the opinion that these expenses, although recurring, should be treated as
non-operating. Thus, they have been removed from the MD&A expense and
added to the other non-operating expense. (Reference - footnote 1. page 47,
Delivery costs)
Costs incurred in fiscal year 2006 and 2005 are $274.1 million, $277.5 million
respectively.
Adjustment: Removed from MD&A expense.
Added to other non-operating expense.
2. Company deducts the cost of sales promotion from the net sales as given in
the footnotes. We think that it would be more appropriate if we include these
costs in the MD&A expense as other costs like advertising costs. (Reference -
footnote 1. page 48, Advertizing and promotional costs)
Costs incurred in fiscal year 2006 and 2005 are $675.3 million, $716.7 million
respectively.
Adjustment: Removed from net sales.
Added to MD&A expense.
3. Company has capitalized the interest as required by the US GAAP. But for the
purpose of analysis we treat it as an expense and add it back to the interest
expense. (Reference - page31. Interest Capitalized)
Interest Capitalized in fiscal year 2006 and 2005, are $17.6 million and $19.9
million respectively.
Adjustment: Removed as a separate line item.
Added back to the interest expense.
4. Litigation expense was a one time charge and it is certainly not related to
operations of their business. Thus, it is treated as a non-operating expense.
(Reference - the income statement)
Adjustment: Removed from the operating expense.
Added as a separate line item to the non-operating expense.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
15
5. Net sales have been reported including net of effective gains (losses) from the
hedging activity. In order to get a better picture of the net sales of the
company we have treated the hedging gain(loss) as a separate line item. These
hedging gains (loss) are non-recurring in a sense that they may or may not be
similar and are too uncertain to predict next year. (Reference - page 52.
Derivative and other financial instruments)
Net effective gains (loss) for the fiscal year of 2006 and 2005 are $(51.7)
million and $ 6.5 million respectively.
Adjustment: Removed from net sales.
Added as a separate line item in the non-operating gains (losses).
6. Company has several operating leases which we have capitalized. (Reference
- page 36. Management Discussion and Analysis)
Adjustment:
Based on certain assumptions, we calculate the interest expense and the
depreciation expense for the year 2006 and 2005 *.
We remove the rent expense from the cost of sales.
Add back the interest part of the payment to the interest expense and the
depreciation of the capital lease is added as a separate line item in the
operating expenses.
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Return on Equity for 2006 = 0.4989
Return on Assets for 2006 = 0.1200
The return on equity and return on assets (GAAP)
Return on Equity for 2006 = 0.5021
Return on Assets for 2006 = 0.1208
The difference between the GAAP and Non GAAP ROE and ROA is very small.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
16
VII. Appendix – Calculation Details
I.A] Z = 1.2 x Working Capital / Total Assets
+ 1.4 x Retained Earnings / Total Assets
+ 3.3 EBIT / Total Assets
+ 0.6 x Market Value of Equity / Book Value of Debt
+ 1.0 x Sales / Total Assets
Z-Score Calculations
Z-score components 2006 2005
Short term Assets $1,829.50 $1,758.70
+ Short term Liabilities $2,246.10 $1,982.60
Working Capital $4,075.60 $3,741.30
Total Assets $16,377.20 $16,555.00
Net Sales $15,717.10 $15,035.70
Retained Earnings $16,741.00 $15,698.00
Closing Price on Dec. 31st (per share) $49.20 $42.96
x Weighted avg shares outstanding $777.50 $798.90
Market Value of Equity $38,253.00 $34,320.74
Book Value of Debt $7,653.50 $7,972.10
Operating Income $2,719.60 $2,486.90
+ Non-operating income(expense) ($10.80) $2.70
EBIT $2,708.80 $2,594.60
* All dollar amounts in the above table are in millions of dollars except per share values
III.A] ROE Calculations
ROE Components 2006 2005
Net Sales $15,717.10 $15,035.70
Net Income $1,965.20 $1,744.40
Average Total Asset $16,466.10 $16,364.20
Average Common Equity $3,809.25 $3,328.85
* All dollar amounts in the above table are in millions of dollars
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
17
III.B]
Liquidity Ratio Calculations
Ratios 2006 2005
Current Assets $1,829.50 $1,758.70
÷ Current Liabilities $2,246.10 $1,982.60
Current Ratio 0.81 0.89
Cash $219.20 $225.80
+ Marketable securities $195.20 $197.00
+ Accounts receivable $720.20 $681.40
÷ Current Liabilities $2,246.10 $1,982.60
Quick Ratio 0.51 0.56
Cash $219.20 $225.80
+ Marketable securities $195.20 $197.00
÷ Current Liabilities $2,246.10 $1,982.60
Cash Ratio 0.18 0.21
Cash flow from operations $2709.4 $2701.9
÷ Current Liabilities $2,246.10 $1,982.60
Cash flow from operations Ratio 1.21 1.36
* All dollar amounts in the above table are in millions of dollars except per share values
III.C]
Capital Structure Calculations
Components 2006 2005
Total Debt $7,653.50 $7,972.10
Total Shareholder's equity $3,938.70 $3,679.80
+ Total Debt $7,653.50 $7,972.10
Total Capital $11,592.20 $11,651.90 * All dollar amounts in the above table are in millions of dollars
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
18
Enterprise Value Calculations
Components 2006
Common stock price per share $49.20
x No. of shares outstanding 777.5
Market Capital $38,253.00
+ Fair value of all stock options* $1,170.00
Common Equity at equity value $39,423.00
Total Debt $7,653.50
÷ Market value of Debt $102.00
Total Debt at market value $7,806.57
Minority Interest at market value -
Associated company at market value -
Preferred Equity at market value -
Cash and Cash Equivalents ($219.20)
Enterprise Value $47,010.37 *All stock options (in the money and out of the money) calculated using Black-Scholes Option Pricing Formula with the data given in the footnotes.
Enterprise Value = common equity at value
+ debt at market value
+ minority interest at market value, if any
- associate company at market value
+ preferred equity at market value
- cash and cash equivalents
III.D]
Depreciation Ratio Calculations
Components 2006
Ending investment $18,710.60
÷ Depreciation Expense $988.70
Average total life span 18.9244462
Accumulated depriciation ($9,794.50)
÷ Depreciation Expense $988.70
Average Age 9.9064428
Accumulated depriciation ($9,794.50)
÷ Ending investment $18,710.60
Relative age 52.347% * All dollar amounts in the above table are in millions of dollars
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
19
IV. B]
Calculations of EBIT , EBITDA and CapEx
Components 2007 2008 2009
Operating Income $2,752.30 $2,887.11 $3,023.10
+ Non-operating items ($15.00) $24.00 $14.00
EBIT $2,737.30 $2,911.11 $3,037.10
+ Restructuring Expenses $8.50 $13.00 $17.00 + Depreciation and amortization $1,013.42 $1,038.75 $1,064.72
EBITDA $3,759.22 $3,962.87 $4,118.82
Total Capital Expenditure $845.00 $925.00 $1,050.00
x 0.35
Maintainance CapEx 295.75 323.75 367.50 * All dollar amounts in the above table are in millions of dollars
IV. C]
Calculations for Fixed Charges
Components 2007 2008 2009
Interest Expense $461.23 $471.38 $481.75
+ Maintainence CapEx $295.75 $323.75 $367.50
+ Dividends $80.81 $85.26 $88.51
+ Principal debt repayments $24.60 $19.50 $21.80
+ Operating lease rent expense $17.50 $13.30 $15.60
Fixed Charge $879.89 $913.18 $975.16 * All dollar amounts in the above table are in millions of dollars
EBITDAR Calculation
Components 2007 2008 2009
EBITDA $3,759.22 $3,962.87 $4,118.82 + Operating lease rent expense $17.50 $13.30 $15.60
EBITDAR $3,776.72 $3,976.17 $4,134.42
*EBITDAR Earnings before interest, taxes, depreciation, amortization and rent expense.
Calculations for Fixed Charge Coverage
Components 2007 2008 2009
EBITDAR $3,776.72 $3,976.17 $4,134.42
÷ Fixed Charge $879.89 $913.18 $975.16
Fixed Charge Coverage Ratio 4.29 4.35 4.24 * All dollar amounts in the above table are in millions of dollars
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
20
V. C]
Calculations of EBIT , EBITDA and CapEx
Components 2007 2008 2009
Operating Income $2,467.17 $2,270.72 $2,155.14
+/- Non-operating items ($15.00) $24.00 $14.00
EBIT $2,452.17 $2,294.72 $2,169.14
Depreciation and amortization $1,013.42 $1,038.75 $1,064.72
Restructuring Charges $8.50 $13.00 $17.00
EBITDA $3,474.09 $3,346.47 $3,250.86
Total Capital Expenditure $845.00 $925.00 $1,050.00
x 0.35
Maintainance CapEx $295.75 $323.75 $367.50 * All dollar amounts in the above table are in millions of dollars
VI. A] Calculations for capitalization of operating leases
Present Value
2006
Years Payment Discount Present
(adjusted) Factor Value
1 $44.00 0.92593 $40.74
2 $29.50 0.85734 $25.29
3 $29.50 0.79383 $23.42
4 $21.50 0.73503 $15.80
5 $21.50 0.68058 $14.63
6 $90.33 0.63017 $56.93
7 $90.33 0.58349 $52.71
8 $90.33 0.54027 $48.80
Total $417.00 $176.81
Using the payment function in Excel, we calculate the average annual payment for the
lease to be -$30.77 million.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
21
Calculating the interest payments
Years Opening Liability Interest Principal Ending Liability
0 $176.81
1 $176.81 $14.14 $16.62 $160.19
2 $160.19 $12.82 $17.95 $142.24
3 $142.24 $11.38 $19.39 $122.85
4 $122.85 $9.83 $20.94 $101.91
5 $101.91 $8.15 $22.62 $79.29
6 $79.29 $6.34 $24.42 $54.87
7 $54.87 $4.39 $26.38 $28.49
8 $28.49 $2.28 $28.49 $0.00
Operating Lease to Capital Lease
Operating
Depreciations Interest Total Expense Total Expense
Rent
$44.00 $22.10 $14.14 $36.25
$59.00 $44.20 $12.82 $57.02
$43.00 $44.20 $11.38 $55.58
$271.00 $88.41 $9.83 $98.23 * Assuming no salvage value
2005
Years Payment Discount Present
(adjusted) Factor Value
1 $45.00 0.92593 $41.67
2 $30.50 0.85734 $26.15
3 $30.50 0.79383 $24.21
4 $24.50 0.73503 $18.01
5 $24.50 0.68058 $16.67
6 $131.00 0.63017 $82.55
7 $131.00 0.58349 $76.44
8 $131.00 0.54027 $70.78
Total $548.00 $209.26
Using the payment function in Excel, we calculate the average annual payment for the
lease to be -$36.41 million.
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
22
Calculating the interest payments
Years Opening Liability Interest Principal
Ending Liability
0 $209.26
1 $209.26 $16.74 $14.03 $195.24
2 $195.24 $15.62 $15.15 $180.09
3 $180.09 $14.41 $16.36 $163.73
4 $163.73 $13.10 $17.67 $146.06
5 $146.06 $11.68 $19.08 $126.97
6 $126.97 $10.16 $20.61 $106.36
7 $106.36 $8.51 $22.26 $84.10
8 $84.10 $6.73 $24.04 $60.06
Operating Lease to Capital Lease
Operating
Depreciations Interest Total Expense Total Expense
Rent
$44.00 $22.10 $16.74 $38.84
$59.00 $44.20 $15.62 $59.82
$43.00 $44.20 $14.41 $58.61
$271.00 $88.41 $13.10 $101.50 * Assuming no salvage value
The point of these calculations is to get the interest and depreciation value of the capital
lease which would affect the income statement based on our assumptions.
VI. C]
Calculations for ROE and ROA
Components Non GAAP GAAP
Net Income $1,965.20 $1,977.76
÷ Total Equity $3,938.70 $3,938.70
Return on Equity 0.4989 0.5021
Net Income $1,965.20 $1,977.76
÷ Total Assets $16,377.20 $16,377.20
Return on Assets 0.1200 0.1208
FINANCIAL STATEMENT ANALYSIS – ANHEUSER-BUSCH
23
VIII. REFERENCES
Cover page:
http://www.psfk.com/wp-content/uploads/s19031.gridserver.com/wp-
content/uploads/psfk.com/anheuser_busch_beer.jpg
http://rimkus.com/images/Business-Interruption.jpg
Anheuser-Busch logo:
http://www.fuhrerwholesale.com/images/AB3%20copy.gif
Stuart School of Business logo:
www.stuart.iit.edu
Other Web References:
http://thegazz.com/gblogs/beerstoyou/files/2007/08/beer-growth.jpg
http://www.deed.state.mn.us/bizdev/PDFs/beer.pdf
http://www.beerservesamerica.com/economic/index.phtml
Text Reference:
1) White, Sondhi, Fried – The Analysis and Use of Financial Statements, 3rd
edition
2) Needles et al. – Principles of Accounting, 7th edition
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